US bonds market rebounds as buying re-emerges

US 10-YR
US 30-YR

U.S. Treasury yields held steady or fell on Friday on renewed appetite for bonds as a two-day scramble for stocks and other risky assets slowed. Longer-dated yields declined from one-week highs as bargain-minded traders reckoned that two days of selling and exits from flattener trades, or bets that shorter-term rates would rise faster than longer-term rates, were overdone.

In the lightest trading day since Nov. 28, the 10-year benchmark Treasury note yield slipped 3 basis points to 2.171 percent, after it recorded on Thursday the biggest two-day increase since June, following the Fed's policy meeting on Wednesday where the wording on rates staying low "for a considerable time" was maintained but tweaked to add "patient".

The 30-year bond decreased 4.6 basis points to 2.768 percent.

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The rebound in the bond market was mitigated by further strength in the stock market with the S&P 500 rising 0.7 percent on Friday. Three Fed officials on Friday gave clues on the thinking inside the Fed as it considers the timing on a rate lift-off.

"The market overshot. It is just stabilizing after two days of sitting near their recent highs," said George Goncalves, head of U.S. interest rate strategy at Nomura Securities International in New York.

Minneapolis Fed President Narayana Kocherlakota said rate hikes in 2015 would create "unacceptable" downside risks to U.S. inflation. Inflation has fallen short of the Fed's 2 percent goal. The recent slide in oil prices has stoked the view the Fed might postpone normalizing rate policy until inflation accelerates. The over 45 percent drop in U.S. oil futures since their peak in June has fed worries it will snowball into a broad U.S. price decline, forcing the chances of a Fed rate hike back until late 2015 at the earliest.

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Amid worries about disinflation, Richmond Fed President Jeffrey Lacker echoed Fed Chair Janet Yellen's view at her press conference two days earlier that the drop in energy prices will boost U.S. consumer spending.